December 21, 2009:
After five years of confusion, accusations, stonewalling and renegotiation, India has agreed to pay Russia an additional $1.3 billion to have the Russian aircraft carrier refurbished to Indian specifications. The original deal was the for getting it done for about a billion dollars. But once the Russians got to work, things got complicated, and out of control,

Indian naval officers have admitted that they were partially to blame for the Gorshkov fiasco. The Indians admit that, when they signed the deal in 2004, they had not had engineers go over the Gorshkov, and agreed, after a cursory inspection, that many electrical and mechanical components, buried within the ships hull, were serviceable. It turned out that many of those components were not good-to-go, and had to be replaced, at great expense. Shortly after the contract was signed, the Russians discovered that the shipyard had misplaced the blueprints for the Gorshkov, and things went downhill from there.

After four years of haggling over Russian demands for more money, India agreed to pay about a billion dollars more, instead of the original (2004) agreed on one billion dollars, for a Russian shipyard to refurbish an old, damaged, aircraft carrier (the Admiral Gorshkov) for Indian use. Last year, Russia threatened to give the Gorshkov back to the Russian Navy if the Indians didn't, come up with even more money.

The 44,000 ton Gorshkov was supposed to have been delivered last year, and renamed the INS Vikramaditya. But now delivery has been delayed until 2012. The Russians admitted that this project suffered from inept planning, shoddy workmanship, and poor management, and they wanted India to pay for most of those mistakes. The Indians were not amused, and played hard ball, making much of the fact that India was now the biggest customer for Russian military exports. Russia was also aware that India was increasingly turning to more expensive (and more capable) Western arms suppliers.

Building a Gorshkov type carrier today would cost about $4 billion, and take eight years. India even looked into buying one of the new, 65,000 ton, British Queen Elizabeth class carriers (for about $6 billion). The Russians were willing to admit to mistakes and put things right, for a price. It has taken over a year of negotiations to determine what a mutually agreeable price would be. Meanwhile, the boss of Sevmash naval shipyard, when the Gorshkov deal was negotiated, was fired and under criminal investigation, on suspicion of financial mismanagement.

Back in 2005, the Indians were not happy with all this, and at first insisted that the Russian government (which owns many of the entities involved) make good on the original deal. India sent its own team of technical experts to Russia, and their report apparently confirmed what the Russians reported, about shipyard officials low-balling the cost of the work needed. This is a common tactic for firms building weapons for their own country. It gets more complicated when you try to pull that sort of thing on a foreign customer. The Russian government initially offered to cover some of the overrun cost. But then they insisted that India cover most of it, or lose the ship entirely. Nothing was said about whether or not the Indians would get any of their money refunded. As Indian anger rose, the Russians began to realize that they would have to eat most of the additional mistakes, or risk losing billions in future sales. There was also a battle within the Indian government, between factions that wanted to dump the deal and cut back on buying Russian weapons, and other factions that wanted to maintain the long ties with Russia, even if it cost India more money.

The Admiral Gorshkov entered service in 1987, but was inactivated in 1996 because it was too expensive to operate on a post Cold War budget. This attracted the attention of India, which was looking for a way to expand their carrier aviation capabilities. India is currently building another carrier, from scratch, but that 40,000 ton vessel won't be ready until 2015. India's sole current aircraft carrier, the 29,000 ton INS Viraat, just emerged from 18 months in a shipyard getting maintenance and upgrades. This work on the Viraat would have been avoided by the timely arrival (last year) of the refurbished Russian carrier. If that had happened, the INS Viraat would have been retired in 2012, after 53 years service (for Britain and India). But now the INS Viraat, with its engine and hull refurbished, and its electronics upgraded, will probably serve for another decade. Thus by 2015, India will have two large carriers in operation, and some bitter memories of their experience with the Russians over the Gorshkov.

Help Keep Us Afloat! Go to other sites on the World Wide Web and they look like the a mad marketer has gained control of them. Lots of ads and little content! Ad revenues are down for everyone! We don’t want to follow the crowd. But here is the deal we cannot keep our site relative ad free without your support. Each month we need your subscriptions or contributions plus what meager ad revenue we do receive to stay in business. You can support us in the following ways:

Make sure you spread the word about us. Two ways to do that are to like us on Facebook and follow us on Twitter.

Subscribe to our daily newsletter. We’ll send the news to your email box, and you don’t have to come to the site unless you want to read columns or see photos.

You can contribute to the health of StrategyPage. A contribution is not a donation that you can deduct at tax time, but a form of crowdfunding. We store none of your information when you contribute..